Investors cautious about valuation

Only Unitech and Mahindra Gesco were able to survive today’s volatile session and finish in green.

Somasroy Chakraborty

Kolkata, Nov. 12 The bearish mode of the benchmark Sensex has resulted in a sharp decline of the BSE Realty Index, which fell by 3.08 per cent (310.93 points) on Monday. The 14-stock realty index was also the worst performer among the 19 equity indices of the BSE.

According to Mr Ambar Maheshwari, Director – Investment Advisory, DTZ, “Realty stocks are high beta stocks, i.e. they are momentum stocks. With such stocks, we have witnessed that if the market goes up by one per cent, the real estate index goes up by 1.5 per cent. And if the market goes down by 2 per cent, the real estate index can go down by 3.5 per cent. The market has fallen today, which has had an effect on the realty index.” Mr Subramaniam Yadav, Research Associate, Prabhudas Lilladher, echoed a similar view. “The real estate sector is very volatile. The movement of realty stocks largely depends on the movement of Sensex and in most cases these stocks outperform the market,” he said.

Volatile session

DLF with the highest weightage of 34.99 per cent in the realty index fell by 4.67 per cent. The losers also include Akruti City, Anant Raj Industries, Ansal Properties, HDIL, Omaxe, Indiabulls, Parsvnath, Peninsula Land, Phoenix Mill, Puravankara and Sobha Developers. Only Unitech and Mahindra Gesco were able to survive today’s volatile session and finish in green.

“There is a lot of froth in real estate stock valuations and investors are very cautious about the stock valuation. The valuations and fundamentals are not closely linked. While valuations are changing significantly the fundamentals remain the same,” Mr Ankur Srivastava, Managing Director, DTZ, told Business Line.

“Moreover, realty index and realty stocks are new concepts in Indian stock market and it will take at least a couple of years to comprehend the real value of these stocks. For now, the current movements in these stocks can only be explained by the fact that realty stocks are momentum driven,” he added.

According to Mr J.C. Sharma, Managing Director, Sobha Developers, there is no concern among investors relating to realty stocks. “The interest rates are low and there is still enough liquidity in the market. I do not think there is any cause for concern,” he said.

(This article was published in the Business Line print edition dated November 13, 2007)
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